Recent investments, partnerships and acquisitions in the Canadian cannabis industry highlight the importance of recreational branding as the country transitions focus from medical marijuana to adult-use, recreational cannabis. The marketing of recreational products to a mass audience differs significantly from the marketing of medical products to a narrower audience, and an examination of investments in the space can serve to put a perceived value on brands that are focused on the mass market.

Choom Holdings is a company that started with one specific goal in mind - develop a brand that would have broad appeal in the nascent Canadian recreational cannabis industry. Choom is a local Hawaiian term for smoking marijuana, and the company aims to bring the spirit of relaxed good times from the islands straight to the Canadian cannabis consumer's door.

Recent Deals

Shortly on the heels of announcing a supply agreement between the two companies, Emblem Corp. announced that it was acquiring an interest in Fire & Flower. Fire & Flower is a corporately-owned retail cannabis lifestyle brand and store concept, and it has announced its application for 37 retail licenses in Alberta. The company is also contemplating retail efforts in British Columbia, Saskatchewan and the Atlantic provinces, though nothing official has been announced.

Determining the value of Fire & Flower is a little bit tricky, but according to a recent press release from TerrAscend Corp., its C$2.5 million investment amounts to about 5% of the outstanding Fire & Flower shares. Simple math puts the value at about $50 million for the company, with a retail concept and a number of applications on its books.

Hiku Brands is another interesting story. The company was very recently formed through the merger of DOJA Cannabis, a smaller licensed producer, and Tokyo Smoke, a cannabis-oriented retailer of coffee, clothing and accessories in British Columbia, Alberta, and Ontario. In a recently-announced deal, Hiku is merging with WeedMD to combine the retail company with the more-established medical marijuana producer.

In the end, should the deal pass muster with shareholders and regulators, Hiku shareholders will own about 51.75% of the company and WeedMD holders about 48.25%. This means that the companies are on nearly equal footing, perhaps a surprising development for the merger between the more established medical licensed producer and the smaller producer/retail concept company. The companies currently feature market caps of approximately $178 million for WeedMD and about $195 million for Hiku.

There are also deals like Aphria's acquisition of Broken Coast Cannabis for $230 million to consider, and Supreme Pharma's purchase of a 10% stake in BlissCo. But you get the picture. Licensed producers are putting tremendous resources into retail brands and companies in often very early stages of development.

Choom's Place in the Market

Choom™ emerged in the public markets in late 2017, formed with the intent of developing a great brand focused exclusively on the recreational cannabis consumer. Management was reading the tea leaves, and the company is one of the very few recreational pure-play public entities. It also has a relatively impressive list of assets and accomplishments as it builds a dedicated recreational cannabis company, vertically integrated from seed through retail sales.

Choom owns two late stage licensed producer applicants, both based in British Columbia. It also has agreements in place, pending details, to acquire two more late stage applicants, one in BC and one based in Saskatchewan. All of these applications are anticipated to be approved in the near term. To hedge against delays in ramping up its own production, Choom has a supply agreement in place with ABcann. The Ontario-based producer also chipped in $4 million in Choom's recent $7 million raise.

Choom has announced plans for retail applications and locations throughout Saskatchewan, Alberta, and British Columbia, totalling 48 potential retail outlets to this point. The company is also eyeing further opportunities further east in Canada, but has been initially focused on covering the three westernmost provinces, accounting for about 27% of the country's population.

With a current market cap in the neighborhood of $60 million, it could be argued that Choom is undervalued when compared with the recent investments in the retail brand space. That argument would only grow more convincing should any of the company's four applicants advance through the next phases of licensing. Similarly, should Choom receive approval for its planned retail outlets, the company could look like a bargain compared to some of its retail-hopeful brethren. All of the above bears watching.